GFD clarifies VAT regime upon resale of telecommunication services
Owing to a considerable degree of ambiguity primarily with respect to the resale of telecommunication services, the General Financial Directorate (GFD) decided to respond to frequent inquiries by publishing an appendix to the previously issued Information on Electronic Communication Services. The appendix, still in its draft form, should be published shortly. After a long period of waiting, will the time really come when businesses can be certain about the reinvoicing of expenses for private calls? Or parent companies about the reinvoicing of expenses for telecommunication services to their subsidiaries within holdings?
Based on available information, the GFD’s draft appendix clarifies criteria under which the reverse-charge mechanism may be applied, providing also illustrative example transactions.
The basic condition for applying the reverse-charge regime is that both the service provider and the service recipient be businesses operating in electronic communications. In other words, the service recipient must purchase telecommunication services for the purpose of resale and with the intention to generate profit. Only then should the service provider (operator) apply the reverse-charge mechanism on the provision of services.
In contrast, purchases of telecommunication services for one’s own consumption purposes, i.e. with no intention to generate profit, should not be subject to the reverse-charge regime. The term “own consumption” means one’s own consumption of services or the facilitation of consumption to end users. This involves situations in which private calls or additional SIM cards for family members are reinvoiced to employees without a margin.
Another exception to the reverse-charge application is, for example, the purchase of electronic communication services within a holding of companies when the parent company reinvoices expenses to individual subsidiaries without a margin. In such cases, the service operator (provider) should invoice the provision of services to the parent company including VAT. The GFD recommends that the service recipients’ intentions always be declared in writing so that the service provider will know how to proceed accordingly.